Benefit/ Cost Analysis in Engineering Economics

The following is a discussion  agenda on Benefit/Cost Analysis (BCA) in Engineering Economics:

1. BCA for Project Evaluation
• Basic formula on BCA
• BCA criteria
• Minimum investment
• Maximum benefit
• Aspiration level
• Maximum advantage of benefits over cost
• Highest B/C ratio
• Largest investment that has a benefit/cost ratio greater than 1.0
• Maximum incremental advantage of benfit over cost
• Maximum incremental benefit/cost ratio
• Largest investment that has an incremental B/C ratio greater than 1.0
2. Benefit/ Cost Comparisons
3. Irregularities in B/C comparions
• Lack of assistance in setting priorities
• Equal benefit to all
• Validations due to formula inputs
4. Quantification of project costs and benefits
• Imputed costs of existing assets used in a project
• Preliminary costs of investigation
• Spillover costs
5. Cost-effectiveness analysis
6. The discount rate concern
• Range of discount rate
• Social discount rate
7. Consumers' surplus
• Spillover costs

References

1. Riggs, J.L.,Bedworth, D.D. and Randhawa, S.U. (1998) Engineering Economics, McGraw-Hill
2. On imputed cost: http://www.investopedia.com/terms/i/imputed-cost.asp#axzz1nbxvPIVL